Global leaders can navigate choppy markets

Oct 29, 2018

Global markets have had a challenging October with a sell-off across sectors and investors have taken it on the chin as the swings have erased many gains of the year.

The forces at work are complex. Markets have been affected by uncertainty around three-way North American trade – the old NAFTA and the new USMCA, a broader global trade war between the U.S. and China and rising interest rates. There are also destabilizing geopolitical worries from Iran and Saudi Arabia to Italy to Brexit.

One place investors can turn as they try to navigate these waters is with companies that have brands with global presence. They generally have the ability to generate consistent dividend income in good and bad times. They fall the least when markets fall and recover first when they rebound.

Harvest Portfolios Group Inc., Chief Investment Officer Paul MacDonald made these points in a recent interview with Morningstar Research. He noted that a select group of stocks that have brand power can ride out corrections. He pointed to the Harvest Brand Leaders Plus Income ETF (TSX :HBF, HBF.U) as an example.

The fund has assets of $134.4 million (as of Oct. 25, 2018) and was created as part of the broader Harvest philosophy of owning high-quality businesses over the longer term.

The starting point for the Fund was the top 100 leading global brands which was narrowed down to 65 when screened for market capitalization of US$10 billion. A further filter looked at stocks listed in the U.S. and available as options. MacDonald uses a covered call strategy to generate an annualized distribution yield of 6.84% (based on the September 30, 2018 net asset value).

The Fund is built around 20 companies that are equally weighted and rebalanced quarterly.

In the interview, MacDonald was asked for his opinion on how long the market cycle will last. He said nobody can answer that, so the best solution is to own quality businesses. They dominate their industries, have deep pockets and a history of profitability which means they can thrive in good times and bad. – AM

To learn more about Harvest Brand Leaders Plus Income ETF, click here.

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